Jim Kunstler's 2014 Forecast - Burning Down The House

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Submitted by James H. Kunstler of Kunstler.com,

Many of us in the Long Emergency crowd and like-minded brother-and-sisterhoods remain perplexed by the amazing stasis in our national life, despite the gathering tsunami of forces arrayed to rock our economy, our culture, and our politics. Nothing has yielded to these forces already in motion, so far. Nothing changes, nothing gives, yet. It’s like being buried alive in Jell-O. It’s embarrassing to appear so out-of-tune with the consensus, but we persevere like good soldiers in a just war.

Paper and digital markets levitate, central banks pull out all the stops of their magical reality-tweaking machine to manipulate everything, accounting fraud pervades public and private enterprise, everything is mis-priced, all official statistics are lies of one kind or another, the regulating authorities sit on their hands, lost in raptures of online pornography (or dreams of future employment at Goldman Sachs), the news media sprinkles wishful-thinking propaganda about a mythical “recovery” and the “shale gas miracle” on a credulous public desperate to believe, the routine swindles of medicine get more cruel and blatant each month, a tiny cohort of financial vampire squids suck in all the nominal wealth of society, and everybody else is left whirling down the drain of posterity in a vortex of diminishing returns and scuttled expectations.

Life in the USA is like living in a broken-down, cob-jobbed, vermin-infested house that needs to be gutted, disinfected, and rebuilt — with the hope that it might come out of the restoration process retaining the better qualities of our heritage. Some of us are anxious to get on with the job, to expel all the rats, bats, bedbugs, roaches, and lice, tear out the stinking shag carpet and the moldy sheet-rock, rip off the crappy plastic siding, and start rebuilding along lines that are consistent with the demands of the future — namely, the reality of capital and material resource scarcity. But it has been apparent for a while that the current owners of the house would prefer to let it fall down, or burn down rather than renovate.

Some of us now take that outcome for granted and are left to speculate on how it will play out. These issues were the subjects of my recent non-fiction books, The Long Emergency and Too Much Magic (as well as excellent similar books by Richard Heinberg, John Michael Greer, Dmitry Orlov, and others). They describe the conditions at the end of the cheap energy techno-industrial phase of history and they laid out a conjectural sequence of outcomes that might be stated in shorthand as collapse and re-set. I think the delay in the onset of epochal change can be explained pretty simply. As the peak oil story gained traction around 2005, and was followed (as predicted) by a financial crisis, the established order fought back for its survival, utilizing its remaining dwindling capital and the tremendous inertia of its own gigantic scale, to give the appearance of vitality at all costs.

At the heart of the matter was (and continues to be) the relationship between energy and economic growth. Without increasing supplies of cheap energy, economic growth — as we have known it for a couple of centuries — does not happen anymore. At the center of the economic growth question is credit. Without continued growth, credit can’t be repaid, and new credit cannot be issued honestly — that is, with reasonable assurance of repayment — making it worthless. So, old debt goes bad and the new debt is generated knowing that it is worthless. To complicate matters, the new worthless debt is issued to pay the interest on the old debt, to maintain the pretense that it is not going bad. And then all kinds of dishonest side rackets are run around this central credit racket — shadow banking, “innovative” securities (i.e. new kinds of frauds and swindles, CDOs CDSs, etc.), flash trading, insider flimflams, pump-and-dumps, naked shorts, etc. These games give the impression of an economy that seems to work. But the reported “growth” is phony, a concoction of overcooked statistics and wishful thinking. And the net effect moves the society as a whole in the direction of more destructive ultimate failure.

Now, a number of stories have been employed lately to keep all these rackets going — or, at least, keep up the morale of the swindled masses. They issue from the corporations, government agencies, and a lazy, wishful media. Their purpose is to prop up the lie that the dying economy of yesteryear is alive and well, and can continue “normal” operation indefinitely. Here are the favorites of the past year:

  • Shale oil and gas amount to an “energy renaissance” that will keep supplies of affordable fossil fuels flowing indefinitely, will make us “energy independent,” and will make us “a bigger producer than Saudi Arabia.” This is all mendacious bullshit with a wishful thinking cherry on top. Here’s how shale oil is different from conventional oil:

PP Oil 2

  • A “manufacturing renaissance” is underway in the US, especially in the “central corridor” running from Texas north to Minnesota. That hoopla is all about a few chemical plants and fertilizer factories that have reopened to take advantage of cheaper natural gas. Note, the shale gas story is much like the shale oil story in terms of drilling and production. The depletion rates are quick and epic. In a very few years, shale gas won’t be cheap anymore. Otherwise, current talk of new manufacturing for hard goods is all about robots. How many Americans will be employed in these factories? And what about the existing manufacturing over-capacity everywhere else in the world? Are we making enough sneakers and Justin Beiber dolls? File under complete fucking nonsense.
  • The USA is “the cleanest shirt in the laundry basket,” “the best house in a bad neighborhood,” the safest harbor for international “liquidity,” making it a sure bet that both the equity and bond markets will continue to ratchet up as money seeking lower risk floods in to the Dow and S & P from other countries with dodgier economies and sicker banks. In a currency war, with all nations competitively depreciating their currencies, gaming interest rates, manipulating markets, falsely reporting numbers, hiding liabilities, backstopping bad banks, and failing to regulate banking crime, there are no safe harbors. The USA can pretend to be for a while and then that illusion will pop, along with the “asset” bubbles that inspire it.
  • The USA is enjoying huge gains from fantastic new “efficiencies of technological innovation.” The truth is not so dazzling. Computer technology, produces diminishing returns and unanticipated consequences. The server farms are huge energy sinks. Online shopping corrodes the resilience of commercial networks when only a few giant companies remain standing; and so on. Problems like these recall the central collapse theory of Joseph Tainter which states that heaping additional complexity on dysfunctional hyper-complex societies tends to induce their collapse. Hence, my insistence that downscaling, simplifying, re-localizing and re-setting the systems we depend on are imperative to keep the project of civilization going. That is, if you prefer civilization to its known alternatives.

Notice that all of these stories want to put over the general impression that the status quo is alive and well. They’re based on the dumb idea that the stock markets are a proxy for the economy, so if the Standard & Poor’s 500 keeps on going up, it’s all good. The master wish running through the American zeitgeist these days is that we might be able to keep driving to Wal-Mart forever.

The truth is that we still have a huge, deadly energy problem. Shale oil is not cheap oil, and it will stop seeming abundant soon. If the price of oil goes much above $100 a barrel, which you’d think would be great for the oil companies, it will crash demand for oil. If it crashes demand, the price will go down, hurting the profitability of the shale oil companies. It’s quite a predicament. Right now, in the $90-100-a-barrel range, it’s just slowly bleeding the economy while barely allowing the shale oil producers to keep up all the drilling. Two-thirds of all the dollars invested (more than $120 billion a year) goes just to keep production levels flat. Blogger Mark Anthony summarized it nicely:

…the shale oil and gas developers tend to use unreliable production models to project unrealistically high EURs (Estimated Ultimate Recovery) of their shale wells. They then use the over-estimated EURs to under-calculate the amortization costs of the capital spending, in order to report “profits”, despite of the fact that they have to keep borrowing more money to keep drilling new wells, and that capital spending routinely out paces revenue stream by several times… shale oil and gas producers tend to over-exaggerate productivity of their wells, under-estimate the well declines…in order to pitch their investment case to banks and investors, so they can keep borrowing more money to keep drilling shale wells.

As stated in the intro, these perversities reverberate in the investment sector. Non-cheap oil upsets the mechanisms of capital formation — financial growth is stymied — in a way that ultimately affects the financing of oil production itself. Old credit cannot be repaid, scaring off new credit (because it is even more unlikely to be repaid). At ZIRP interest, nobody saves. The capital pools dry up. So the Federal Reserve has to issue ersatz credit dollars on its computers. That credit will remain stillborn and mummified in depository institutions afraid of lending it to the likes of sharpies and hypesters in the shale gas industry.

But real, functioning capital (credit that can be paid back) is vanishing, and the coming scarcity of real capital makes it much more difficult to keep the stupendous number of rigs busy drilling and fracking new shale oil wells, which you have to do incessantly to keep production up, and as the investment in new drilling declines, and the “sweet spots” yield to the less-sweet spots or the not-sweet-at-all spots… then the Ponzis of shale oil and shale gas, too will be unmasked as the jive endeavors they are. And when people stop believing these cockamamie stories, the truth will dawn on them that we are in a predicament where further growth and wealth cannot be generated and the economy is actually in the early stages of a permanent contraction, and that will trigger an unholy host of nasty consequences proceeding from the loss of faith in these fairy tales, going so far as the meltdown of the banking system, social turmoil, and political upheaval.

The bottom line is that the “shale revolution” will be short-lived. 2014 may be the peak production year in the Bakken play of North Dakota. Eagle Ford in Texas is a little younger and may lag Bakken by a couple of years. If Federal Reserve policies create more disorder in the banking system this year, investment for shale will dry up, new drilling will nosedive, and shale oil production will go down substantially. Meanwhile. conventional oil production in the USA continues to decline remorselessly.

The End of Fed Cred

It must be scary to be a Federal Reserve governor. You have to pretend that you know what you’re doing when, in fact, Fed policy appears completely divorced from any sense of consequence, or cause-and-effect, or reality — and if it turns out you’re not so smart, and your policies and interventions undermine true economic resilience, then the scuttling of the most powerful civilization in the history of the world might be your fault — even if you went to Andover and wear tortoise-shell glasses that make you appear to be smart.

The Fed painted itself into a corner the last few years by making Quantitative Easing a permanent feature of the financial landscape. QE backstops everything now. Tragically, additional backdoor backstopping extends beyond the QE official figures (as of December 2013) of $85 billion a month. American money (or credit) is being shoveled into anything and everything, including foreign banks and probably foreign treasuries. It’s just another facet of the prevailing pervasive dishonesty infecting the system that we have no idea, really, how much money is being shoveled and sprinkled around. Anything goes and nothing matters. However, since there is an official consensus that you can’t keep QE money-pumping up forever, the Fed officially made a big show of seeking to begin ending it. So in the Spring of 2013 they announced their intention to “taper” their purchases of US Treasury paper and mortgage paper, possibly in the fall.

Well, it turned out they didn’t or couldn’t taper. As the fall equinox approached, with everyone keenly anticipating the first dose of taper, the equity markets wobbled and the interest rate on the 10-year treasury — the index for mortgage loans and car loans — climbed to 3.00 percent from its May low of 1.63 — well over 100 basis points — and the Fed chickened out. No September taper. Fake out. So, the markets relaxed, the interest rate on the 10-year went back down, and the equity markets resumed their grand ramp into the Christmas climax. However, the Fed’s credibility took a hit, especially after all their confabulating bullshit “forward guidance” in the spring and summer when they couldn’t get their taper story straight. And in the meantime, the Larry-Summers-for-Fed-Chair float unfloated, and Janet Yellen was officially picked to succeed Ben Bernanke, with her reputation as an extreme easy money softie (more QE, more ZIRP), and a bunch of hearings were staged to make the Bernanke-Yellen transition look more reassuring.

And then on December 18, outgoing chair Bernanke announced, with much fanfare, that the taper would happen after all, early in the first quarter of 2014 ­— after he is safely out of his office in the Eccles building and back in his bomb shelter on the Princeton campus. The Fed meant it this time, the public was given to understand.

The only catch here, as I write, after the latest taper announcement, is that interest on the 10-year treasury note has crept stealthily back up over 3 percent. Wuh-oh. Not a good sign, since it means more expensive mortgages and car loans, which happen to represent the two things that the current economy relies on to appear “normal.” (House sales and car sales = normal in a suburban sprawl economy.)

I think the truth is the Fed just did too darn much QE and ZIRP and they waited way too long to cut it out, and now they can’t end it without scuttling both the stock and bond markets. But they can’t really go forward with the taper, either. A rock and a hard place. So, my guess is that they’ll pretend to taper in March, and then they’ll just as quickly un-taper. Note the curious report out of the American Enterprise Institute ten days ago by John H. Makin saying that the Fed’s actual purchase of debt paper amounted to an average $94 billion a month through the year 2013, not $85 billion. Which would pretty much negate the proposed taper of $5 billion + $5 billion (Treasury paper + Mortgage paper).

And in so faking and so doing they may succeed in completely destroying the credibility of the Federal Reserve. When that happens, capital will be disappearing so efficiently that the USA will find itself in a compressive deflationary spiral — because that’s what happens when faith in the authority behind credit is destroyed, and new loans to cover the interest on old loans are no longer offered in the non-government banking system, and old loans can’t be serviced. At which point the Federal Reserve freaks out and announces new extra-special QE way above the former 2013 level of $85 billion a month, and the government chips in with currency controls. And that sets in motion the awful prospect of the dreaded “crack-up boom” into extraordinary inflation, when dollars turn into hot potatoes and people can’t get rid of them fast enough. Well, is that going to happen this year? It depends on how spooked the Fed gets. In any case, there is a difference between high inflation and hyper-inflation. High inflation is bad enough to provoke socio-political convulsion. I don’t really see how the Fed gets around this March taper bid without falling into the trap I’ve just outlined. It wouldn’t be a pretty situation for poor Ms. Janet Yellen, but nobody forced her to take the job, and she’s had the look all along of a chump, the perfect sucker to be left holding a big honking bag of flop.

We’re long overdue for a return to realistic pricing in all markets. The Government and its handmaiden, the Fed, have tweaked the machinery so strenuously for so long that these efforts have entered the wilderness of diminishing returns. Instead of propping up the markets, all they can accomplish now is further erosion of the credibility of the equity markets and the Fed itself — and that bodes darkly for a money system that is essentially run on faith. I think the indexes have topped. The “margin” (money borrowed to buy stock) in the system is at dangerous, historically unprecedented highs. There may be one final reach upward in the first quarter. Then the equities crater, if not sooner. I still think the Dow and S &P could oversell by 90 percent of their value if the falsehoods of the post-2008  interventions stopped working their hoodoo on the collective wishful consciousness.

The worldwide rise in interest rates holds every possibility for igniting a shitstorm in interest rate swaps and upsetting the whole apple-cart of shadow banking and derivatives. That would be a bullet in the head to the TBTF banks, and would therefore lead to a worldwide crisis. In that event, the eventual winners would be the largest holders of gold, who could claim to offer the world a trustworthy gold-backed currency, especially for transactions in vital resources like oil. That would, of course, be China. The process would be awfully disorderly and fraught with political animus. Given the fact that China’s own balance sheet is hopelessly non-transparent and part-and-parcel of a dishonest crony banking system, China would have to use some powerful smoke-and-mirrors to assume that kind of dominant authority. But in the end, it comes down to who has the real goods, and who screwed up (the USA, Europe, Japan) and China, for all its faults and perversities, has the gold.

The wholesale transfer of gold tonnage from the West to the East was one of the salient events of 2013. There were lots of conspiracy theories as to what drove the price of gold down by 28 percent. I do think the painful move was partly a cyclical correction following the decade-long run up to $1900 an ounce. Within that cyclical correction, there was a lot of room for the so-called “bullion banks” to pound the gold and silver prices down with their shorting orgy. Numerous times the past year, somebody had laid a fat finger on the “sell” key, like, at four o’clock in the morning New York time when no traders were in their offices, and the record of those weird transactions is plain to see in the daily charts. My own theory is that an effort was made — in effect, a policy — to suppress the gold price via collusion between the Fed, the US Treasury, the bullion banks, and China, as a way to allow China to accumulate gold to offset the anticipated loss of value in the US Treasury paper held by them, throwing China a big golden bone, so to speak — in other words, to keep China from getting hugely pissed off. The gold crash had the happy effect for the US Treasury of making the dollar appear strong at a time when many other nations were getting sick of US dollar domination, especially in the oil markets, and were threatening to instigate a new currency regime by hook or by crook. Throwing China the golden bone is also consistent with the USA’s official position that gold is a meaningless barbaric relic where national currencies are concerned, and therefore nobody but the barbaric yellow hordes of Asia would care about it.

Other nations don’t feel that way. Russia and Switzerland have been accumulating gold like crazy at bargain prices this year. Last year, Germany requested its sovereign gold cache (300 tons) to be returned from the vaults in America, where it was stored through all the decades of the cold war, safe from the reach of the Soviets. But American officials told the Germans it would take seven years to accomplish the return. Seven years ! ! ! WTF? Is there a shortage of banana boats? The sentiment in goldville is that the USA long ago “leased” or sold off or rehypothecated or lost that gold. Anyway, Germany’s 300 tons was a small fraction of the 6,700 tons supposedly held in the Fed’s vaults. Who knows? No auditors have been allowed into the Fed vaults to actually see what’s up with the collateral. This in and of itself ought to make the prudent nervous.

I think we’re near the end of these reindeer games with gold, largely because so many vaults in the West have been emptied. That places constraints on further shenanigans in the paper gold (and silver) markets. In an environment where both the destructive forces of deflation and inflation can be unleashed in sequence, uncertainty is the greatest motivator, trumping the usual greed and fear seen in markets that can be fairly measured against stable currencies. In 2014, the public has become aware of the bank “bail-in” phenomenon which, along with rehypothication schemes, just amounts to the seizure of customer and client accounts — a really new wrinkle in contemporary banking relations. Nobody knows if it’s safe to park cash money anywhere except inside the mattress. The precedent set in Cyprus, and the MF Global affair, and other confiscation events, would tend to support an interest in precious metals held outside the institutional framework. Uncertainty rules.

Miscellany

I get a lot of email on the subject of Bitcoin. Here’s how I feel about it.
It’s an even more abstract form of “money” than fiat currencies or securities based on fiat currencies. Do we need more abstraction in our economic lives? I don’t think so. I believe the trend will be toward what is real. For the moment, Bitcoin seems to be enjoying some success as it beats back successive crashes. I’m not very comfortable with the idea of investing in an algorithm. I don’t see how it is impervious to government hacking. In fact, I’d bet that somewhere in the DOD or the NSA or the CIA right now some nerd is working on that. Bitcoin is provoking imitators, other new computer “currencies.” Why would Bitcoin necessarily enjoy dominance? And how many competing algorithmic currencies can the world stand? Wouldn’t that defeat the whole purpose of an alternative “go to” currency? All I can say is that I’m not buying Bitcoins.

Will ObamaCare crash and burn. It’s not doing very well so far. In fact, it’s a poster-child for Murphy’s Law (Anything that can go wrong, will go wrong). I suppose the primary question is whether they can enroll enough healthy young people to correct the actuarial nightmare that health insurance has become. That’s not looking so good either now. But really, how can anyone trust a law that was written by the insurance companies and the pharmaceutical industry? And how can it be repealed when so many individuals, groups, companies, have already lost their pre-ObamaCare policies? What is there to go back to? Therefore, I’d have to predict turmoil in the health care system for 2014. The failure to resolve the inadequacies of ObamaCare also may be a prime symptom of the increasing impotence of the federal government to accomplish anything. That failure would prompt an even faster downscaling of governance as states, counties, communities, and individuals realize that they are on their own.

Sorry to skip around, but a few stray words about the state of American culture. Outside the capitals of the “one percent” — Manhattan, San Francisco, Boston, Washington, etc. — American material culture is in spectacular disrepair. Car culture and chain store tyranny have destroyed the physical fabric of our communities and wrecked social relations. These days, a successful Main Street is one that has a wig shop and a check-cashing office. It is sickening to see what we have become. Our popular entertainments are just what you would design to produce a programmed population of criminals and sex offenders. The spectacle of the way our people look —overfed, tattooed, pierced, clothed in the raiment of clowns — suggests an end-of-empire zeitgeist more disturbing than a Fellini movie. The fact is, it simply mirrors the way we act, our gross, barbaric collective demeanor. A walk down any airport concourse makes the Barnum & Bailey freak shows of yore look quaint. In short, the rot throughout our national life is so conspicuous that a fair assessment would be that we are a wicked people who deserve to be punished.

Elsewhere in the World

Globalism, in the Tom Friedman euphoric sense, is unwinding. Currency wars are wearing down the players, conflicts and tensions are breaking out where before there were only Wal-Mart share price triumphs and Foxconn profits. Both American and European middle-classes are too exhausted financially to continue the consumer orgy of the early millennium. The trade imbalances are horrific. Unpayable debt saturates everything. Sick economies will weigh down commodity prices except for food-related things. The planet Earth has probably reached peak food production, including peak fertilizer. Supplies of grain will be inadequate in 2014 to feed the still-expanding masses of the poor places in the world.

The nervous calm in finance and economies since 2008 has its mirror in the relative calm of the political scene. Uprisings and skirmishes have broken out, but nothing that so far threatens the peace between great powers. There have been the now-historic revolts in Egypt, Libya, Syria, and other Middle East and North African (MENA) states. Iraq is once again disintegrating after a decade of American “nation-building.” Greece is falling apart. Spain and Italy should be falling apart but haven’t yet. France is sinking into bankruptcy. The UK is in on the grift with the USA and insulated from the Euro, but the British Isles are way over-populated with a volatile multi-ethnic mix and not much of an economy outside the financial district of London. There were riots in — of all places — Sweden this year. Turkey entered crisis just a few weeks ago along with Ukraine.

I predict more colorful political strife in Europe this year, boots in the street, barricades, gunfire, and bombs. The populations of these countries will want relief measures from their national governments, but the sad news is that these governments are broke, so austerity seems to be the order of the day no matter what. I think this will prod incipient revolts in a rightward nationalist direction. If it was up to Marine LePen’s rising National Front party, they would solve the employment problem by expelling all the recent immigrants — though the mere attempt would probably provoke widespread race war in France.

The quarrel between China and Japan over the Senkaku Islands is a diversion from the real action in the South China Sea, said to hold large underwater petroleum reserves. China is the world’s second greatest oil importer. Their economy and the credibility of its non-elected government depends on keeping the oil supply up. They are a long way from other places in the world where oil comes from, hence their eagerness to secure and dominate the South China Sea. The idea is that China would make a fuss over the Senkaku group, get Japan and the US to the negotiating table, and cede the dispute over them to Japan in exchange for Japan and the US supporting China’s claims in the South China Sea against the other neighbors there: Vietnam, Indonesia, Malaysia, and the Philippines.

The catch is that Japan may be going politically insane just now between the rigors of (Shinzo) Abenomics and the mystical horrors of Fukushima. Japan’s distress appears to be provoking a new mood of nationalist militarism of a kind not seen there since the 1940s. They’re talking about arming up, rewriting the pacifist articles in their constitution. Scary, if you have a memory of the mid-20th century. China should know something about national psychotic breaks, having not so long ago endured the insanity of Mao Zedong’s Cultural Revolution (1966-71). So they might want to handle Japan with care. On the other hand, China surely nurtures a deep, deadly grudge over the crimes perpetrated by Japan in the Second World War, and now has a disciplined, world-class military, and so maybe they would like to kick Japan’s ass. It’s a hard one to call. I suspect that in 2014, the ball is in Japan’s court. What will they do? If the US doesn’t stay out of the way of that action, then we are insane, too.

That said, I stick by my story from last year’s forecast: Japan’s ultimate destination is to “go medieval.” They’re never going to recover from Fukushima, their economy is unraveling, they have no fossil fuels of their own and have to import everything, and their balance of payments is completely out of whack. The best course for them will be to just throw in the towel on modernity. Everybody else is headed that way, too, eventually, so Japan might as well get there first and set a good example.

By “go medieval” I mean re-set to a pre-industrial World Made By Hand level of operation. I’m sure that outcome seems laughably implausible to most readers, but I maintain that both the human race and the planet Earth need a “time out” from the ravages of “progress,” and circumstances are going to force the issue anyway, so we might as well kick back and get with the program: go local, downscale, learn useful skills, cultivate our gardens, get to know our neighbors, learn how to play a musical instrument, work, dine, and dance with our friends.

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Mon, 01/06/2014 - 20:40 | 4306128 knukles
knukles's picture

Now that is a thing of beauty

Mon, 01/06/2014 - 20:49 | 4306161 DaddyO
DaddyO's picture

Oh no he didn't!

Just blew up the Bakken Oil Field myth...

DaddyO

Mon, 01/06/2014 - 21:09 | 4306214 jbvtme
jbvtme's picture

good action

Mon, 01/06/2014 - 23:42 | 4306778 old naughty
old naughty's picture

What's with the image?

So we would have the dragonslayer wielding his sword, once again?

Sacred,scared; Holy, holy.

Here now!

Tue, 01/07/2014 - 01:08 | 4306975 DaddyO
DaddyO's picture

We interupt our regularly scheduled programming for this important update...

GO 'NOLES, 2014 National Champs!!

Now back to our regular program...

DaddyO

Tue, 01/07/2014 - 02:41 | 4307150 derek_vineyard
derek_vineyard's picture

sports allegience is for the meek.  athletes and coaches are  pampered and ego driven. how can you worship them?

Tue, 01/07/2014 - 03:18 | 4307191 boogerbently
boogerbently's picture

Kunstler nailed it. 6 years of insightful, accurate history distilled into this one article.

Tue, 01/07/2014 - 08:00 | 4307424 GetZeeGold
GetZeeGold's picture

 

 

We're gonna get calls about this.

 

It’s an even more abstract form of “money” than fiat currencies or securities based on fiat currencies. Do we need more abstraction in our economic lives? I don’t think so.

 

Oh no....he didn't.

Don't look at me.....I'm NOT answering that damn phone

Mon, 01/06/2014 - 23:54 | 4306808 DoChenRollingBearing
DoChenRollingBearing's picture

Kuntsler is duking it out with Jim Willie to be the No. 1 uber-bear in the world.  I am not saying that he is wrong about most of what he writes above, but he does think linearly.

I expect an epic crack-up myself.  Will it go down along Kuntsler's lines?  I don't know, and that's the problem: we don't know!

One of my oldest friends has a PhD in Geology, he worked as an "Oil Finder" (much prized in the industry) for Exxon.  When the Peak Oil notion became the fashion a few years ago, I wrote him and asked his opinion.  His terse reply: "There's plenty of oil."  Now I do not know if there is plenty or not, but Kuntsler is essentially right about what we know about Bakken and Eagle Ford: the oil runs out fast at wells in both fields.

He also points out the many mistakes of the Fed and our government to not think ahead (Obamacare, ZIRP, etc.).  This is quite correct, as well as his cultural observations on the sad state of US Pop Culture, where he describes it better than anyone else (although Jim Quinn is good too)...

***

Bottom Line:

Kuntsler is telling each of us, that we had better be saving and preparing.  Owning a gold is a darn fine idea.  Having a garden (which condo dwelling Bearings we do not) as well.  Skills.  Right-sized communities.

It is possible that he is too bearish.  I have been bearish since Jimmy Carter (things DID look scary then, trust me young 'uns).  But, it is possible that he (as well as I) could be wrong, to some degree or other.

Our Plan B is to live in Peru if we time any emergency correctly.  We're OK in the city of Lima.  We already have capital there.  Peru can feed itself and has a LOT of resources.

But, I would take at least some of his advice and not bet against him.

Mon, 01/06/2014 - 23:55 | 4306825 JohnnyBlaze
JohnnyBlaze's picture

DoChen.  Do you have any input on Uraguay? 

 

Really enjoy your posts.  Keep it up!

Tue, 01/07/2014 - 00:07 | 4306834 DoChenRollingBearing
DoChenRollingBearing's picture

If you have money and speak Spanish, Uruguay, Chile and Costa Rica would be my top bets.  Our Plan B is Peru, because our infrastructure is there.

Uruguay: moderate climate, not too crowded, lots of agriculture, tolerance

Chile: by recent historical standards Chile is very responsible, well governed.

Costa Rica: if you have money enjoy life there, "Pura Vida!"

Disclosure, I have only spent a few weeks (total) in Costa Rica, but it seems pretty much as advertised.  I spent one AFTERNOON in Uruguay, but I would be fairly confident that it is pretty much as advertised as well.  I have spent NO time in Chile, but hear a lot of good things.

***

Avoid Argentina (even though Doug Casey has his little colony there), epic irresponsible place.  Avoid Venezuela and Nicargaua, I know people from EACH who have left and they ALL say that things are terrible in those two.

Tue, 01/07/2014 - 00:24 | 4306888 JohnnyBlaze
JohnnyBlaze's picture

Thanks for the info DoChen!

Tue, 01/07/2014 - 00:25 | 4306890 akak
akak's picture

How about if you speak Spanish and DON'T have much money?

I bet the low-bullet-count season in Guatemala is very nice.

Tue, 01/07/2014 - 00:39 | 4306921 DoChenRollingBearing
DoChenRollingBearing's picture

akak, ol buddy ol pal!  It would depend on your circumstances (like who you know, your skill set, etc.).  Having skills they need would help.

You might just stay where you are at, IIRC you might not be too messed with...  Armed to the teeth, with PMs buried, and a pirate flag over your place!  The Hungry Horde might very well pass you by...

Tue, 01/07/2014 - 00:46 | 4306933 akak
akak's picture

DoChen, good to 'see' you, as always!

I have for years considered moving to South America, but the lack of a portable treasure (well, any treasure, really) as well as the lack of an advanced skill set such as being a doctor or engineer have, among other factors, deterred me from pursuing the idea, at least so far.  But I still think of it often, having traveled at some length down that way and having liked a good deal of what I saw (as well as liking less and less a good deal of what I currently see in the USSA).

Tue, 01/07/2014 - 03:48 | 4307221 sterling effort
sterling effort's picture

@Akak

You appear to have a pretty good brain.

You could take that with you.

Tue, 01/07/2014 - 11:33 | 4308026 HobbyFarmer
HobbyFarmer's picture

One of my closest friends moved his family to Guatemala and started an eco-tourism/permaculture farm.  Raising rabbits, pigs, chickens, corn, beans, veggies, worm-farming, composting, etc.  this is in the mountains near a few small villages. 

He and his wife are fluent in spanish but moved there as very poor Americans....he has purchased an acre and is building a home and the micro-farm I mentioned.

It can be done very cheap.  His family is working with locals to teach permaculture techniques and is earning a lot of valuable friendships.

from our communications, he gives this area of Guatemala and especially the weather, major thumbs up.

Tue, 01/07/2014 - 11:42 | 4308064 tip e. canoe
tip e. canoe's picture

lake atitlan?

Tue, 01/07/2014 - 02:10 | 4307093 sylviasays
sylviasays's picture

do as akak peak oil troll would do - live on the democrap entitlement plantation 

Tue, 01/07/2014 - 00:31 | 4306905 BLOTTO
BLOTTO's picture

No visible means of support and you have not seen nothin' yet
Everything's stuck together
I don't know what you expect staring into the TV set
Fighting fire with fire

Burning down the house

~Talking Heads, Burning Down the House

 

Tue, 01/07/2014 - 07:40 | 4307410 samcontrol
samcontrol's picture

Do Chen,

you are giving really bad advice,,, have you been to Argentina and if you have , have you been outside of Bs as ?

Epic irresponsible yes but NO MORE than the US or the countries you mention. The chaos has advantages, many.
I am way more FREE than where you live man , i guarantee it. I pay no taxes have 0 debt (most don,t have debt here) and i don,t even use a credit card in Argentina. My bank account here is at around 100 bucks . Don,t be confused i live like a king but UNDER the RADAR and that is why ARGENTINA should be a TOP pick...imo

ARGENTINA is bigger than those " provinces" you mention.
Geographically it is a MONSTER.

I felt like i was transported to planet of the apes when I moved .
Now I am the ape, and very happy about it. Most of "us" are selfish dipsticks, but the cool 10% is just as nice as anywhere else.

Tue, 01/07/2014 - 04:15 | 4307250 Rantabulous
Rantabulous's picture

Hi DoChen,

'Peak Oil' is not about reserves. It is about production. There is most certainly "plenty of oil" left. 

The issue is about rate of production and energy return. You can still play around with the definition a bit by narrowing to conventional forms of production vs unconventional etc, but in the end it doesn't really matter - at best you can only push the date. It is simple math. You eventually will reach a maximum point of production after which you will go into terminal decline.

It happens per well, per region, per country - it will (and arguably already has depending on your definition) happen globally. 

Decline rates are typically 4-6% annually.

The problem with oil is this : oil is essentially magical stuff. It is in everything. After production peaks, we will need to very rapidly (over a decade or so because of the decline rates) be implementing substitutes on a MASSIVE scale. People concerned about Peak Oil are, I believe, concerned that this transition will at best be fraught, probably highly disruptive, or conceivably just impossible relative to the world we have known in the 20th century.

If you look at Robert Hirsch's report for the DOE in 2005(?) his conclusion was something like that we would need 20 years to transition if we start before the Peak. If we wait until the Peak we are in big trouble. Given that this decade is likely the crest/plateau of the peak and we aren't even talking about it - you can bet we are heading towards Hirsch's 'worst case scenario'.

 

 

Tue, 01/07/2014 - 05:04 | 4307309 Lore
Lore's picture

I knew an old guy in the oil and gas industry in Alberta, Canada during the 70s boom times, when you could drive Highway 2 and literally see thousands of those little grasshopper wells pumping away.  They're all gone, leaving a network of feeder pipe and modern pumping facilties to pick up dregs from comparatively shallow wells.  I say 'comparative' because he stressed right to his dying day that the biggest fields and pools (oil, gas, CBM) are DEEP in Central Alberta, and "One day, the drills will come back."  I've spoken with other industry geologists with a similar opinion since.  When OPEC approached then-Premier Ralph Klein to discuss associate membership, they weren't thinking merely of Oilsands. 

Like everything else in today's world economy, the timing of Peak Oil is highly vulnerable to manipulation. Vast expanses of wilderness across the Earth have yet to see one exploratory drill bit.  The depletion curve could actually wobble "in a technical range" for decades before eventually dropping in a way that could be viewed as having reasonable finality.  It's just a matter of higher prices and acceptance.  Lots of product remains to be extracted at different depths and in different formations.

Good piece by Mr. Kuntsler.  Met him once.  His paintings are rosier than his prose.

Tue, 01/07/2014 - 06:51 | 4307381 Martel
Martel's picture

Kunstler's writings are enjoyable, but he and many others in the Peak Oil crowd do not think clearly, confusing their wants with what's actually happening. Kunstler envisions a return to the way of life we had 100-150 years ago. It probably requires the willpower of a demigod to ignore what's happening in Science: a steady progress in computers, AI, 3D-printing, drones, self-driving cars etc. These things will be part of the future, whether Kunstler ignores them or not. The energy production can crash all it likes - it won't crash enough to prevent those things from happening. Hence, the future will look quite different than what Kunstler envisions.

Tue, 01/07/2014 - 09:00 | 4307496 centerline
centerline's picture

There is a good chance this is true (what you said).  No one knows exactly where this is heading.  Only that there are practical limits to growth.

Tue, 01/07/2014 - 16:08 | 4309073 Martel
Martel's picture

I agree there are limits to (fossil fuel induced) growth, and I agree the easier half of oil resources has already been consumed (Peak Oil). Still, falling down that slope will take long, and in the nearest decades, the decline is not steep. The future won't look like 1850s with horses, carts and manual labor. The future may be energy poor in fossil fuels, but it will be rich in robotics and information technology.

Tue, 01/07/2014 - 07:09 | 4307390 ebear
ebear's picture

"Kuntsler is duking it out with Jim Willie to be the No. 1 uber-bear in the world."

Markets can stay irrational longer than uberbears can retain their credibility.



Tue, 01/07/2014 - 12:05 | 4308155 moneybots
moneybots's picture

"But, I would take at least some of his advice and not bet against him."

 

This is the problem, though.  The stock market had a record one day crash in 1987Ravi Batra wrote "The Great Depression of 1990."  Others have written "Crash" books since then and the big crash has yet to happen.  Wait till next year, wait till next year, wait till next year.  It is next year again and there are all sorts of predictions, one way or another.  In 2012 there were those calling for a recession to be obvious by 2013.  Yes, if you subtract the debt we have negative GDP, but by that measure we have been in a recession since 1980.  The posted GDP was positive all through 2013.  So should i listen to these people arguing for this or that to happen this year? 

Going parabolic, there should be some kind of drop in the market, but how deep?  The FED has the presses standing by. 

 

"Kuntsler is telling each of us, that we had better be saving and preparing.  Owning a gold is a darn fine idea."

 

Until the government decides to confiscate it or puts some windfall tax on it, if the price skyrockets like some predict.


Tue, 01/07/2014 - 00:13 | 4306857 Oh regional Indian
Oh regional Indian's picture

It is NOT peak oil, it's peak in-efficiency.

Cars give the same mileage (basically) as the model t.

Or less, if you consider embedded energy.

Peak oil is a myth. Peak in-efficiency disguised as progress is the problem...

ori

http://aadivaahan.wordpress.com/2012/01/17/1460-days-ago-ensign-principles-world-view/

Tue, 01/07/2014 - 03:53 | 4307225 zhandax
zhandax's picture

IOW, if automobiles had followed the same development curve as the PC, a Rolls Royce today would cost $100 and explode once a year, killing everyone inside?

Tue, 01/07/2014 - 05:05 | 4307316 Lore
Lore's picture

PWNED.

Tue, 01/07/2014 - 07:25 | 4307403 Oh regional Indian
Oh regional Indian's picture

Wow, two great minds, Zandax who cannot make an apples to apples comparison and brother Lore here who clearly likes beign a dumb wingman.

ori

Tue, 01/07/2014 - 23:07 | 4310264 Lore
Lore's picture

No need to get personal. You made a stupid post;  learn from it and move on.

Tue, 01/07/2014 - 07:12 | 4307392 muleskinner
muleskinner's picture

A relative of mine that farmed land sitting on top of the Bakken formation had an oil company drill a well in 1962.  He bought a brand new 1963 Ford.  The well is still pumping oil and looks like it will for another 50 years.

I know of Bakken Formation wells that have been doing the same and they never seem to stop.

Although, the depletion rates are in line with some wells drilled recently, but the wells never seem to stop pumping, some just don't pump as much.  I know, I see checks from oil companies.  I see the stats.  Been receiving checks from oil companies in the Bakken for years now, many of them.

The idea that the Bakken will begin slowly decreasing in production is not correct.

Kuntsler is all wet when making statements about the Bakken formation and the depletion rate.

Google Leigh Price and read what he has to say about the Bakken.

I'll make it easy.

http://www.undeerc.org/News-Publications/Leigh-Price-Paper/pdf/TextVersion.pdf

 

 

Mon, 01/06/2014 - 20:56 | 4306168 VD
VD's picture

so correct in almost every aspect and yet so fucking wrong about oil! jesus man stop with the peak oil bullshit already; eg the 400k to drill a well circa 1930's adjusted is so fucking off base it's not even funny...

Mon, 01/06/2014 - 21:09 | 4306199 centerline
centerline's picture

Hmm... finite planet, finite resources versus infinite growth.  Economic systems predicated on infinite growth (and limited by economic constraints like cost of energy which gets more expensive as demand outstrips supply, and economic systems grind up against thier own limits).

Hmm.  (scratching head).

Mon, 01/06/2014 - 21:13 | 4306219 VD
VD's picture

like most hysterical Neo-Malthusianz whose infinite myopic gaze is incapable of perusing a single fucking legit study/report on energy, this Kunstler has been defecating all over himself and everyone willing to join him in his peak oil nonsense for how many fucking years now? do u realize what happened to Malthus' predicitions? do you realize the flaws of said predictions? did you or Kunstler ever study this shit? i doubt it...

Mon, 01/06/2014 - 21:21 | 4306244 centerline
centerline's picture

Malthus was too linear.  He missed the mark by a country mile.

What happened to his theories?  Well, some argued technology would allow for more.  They were right.  Some argued that redistribution (Marxism) would allow for more.  They were right.

Where they are wrong is that they only modified Malthus's work.  They did not refute it.  None proved that growth is not constrained.  They only provided reasonable mechanisms to cram more assholes on this floating rock.

Finite planet = fininte resources.  Even a study of bacteria shows how this works.  Think we are better than bacteria VD?  I don't.  Not as a herd.

Regarding Peak Oil, it is an economic constrant related only in part to production.  The military has been "think tanking" this shit since the 70's.  It is a long process - and has twists and turns like demand destruction due to economic decline.

Mon, 01/06/2014 - 21:21 | 4306254 VD
VD's picture

i have profound respect for farmers and appreciate the vital necessity of farming, but just cause u can plant a tuber n make it grow dont mean u can appreciate a paper on a subject such as energy and energy projections. Neo-Malthusianism is almost as bad as Neo-Keynesianism, in diametrically opposing ways ;)

Mon, 01/06/2014 - 21:26 | 4306276 new game
new game's picture

kuunstler has a book to sell, give it enough time him and his democratic buddies will get it right.

in the mean time both parties(listen up kuns), yea both parties don't give a shits what you are selling...

Mon, 01/06/2014 - 21:28 | 4306287 VD
VD's picture

correct. and if Kuntzler invested according to how he shits out his opinions in his books he'd be living in a cardboard box and using an EBT card for sustenance....

Tue, 01/07/2014 - 03:28 | 4307196 Escapeclaws
Escapeclaws's picture

Kunstler is a wordsmith and he spins a good yarn. His technique, like all good wordsmiths (Freud is another good example and was a splendid stylist in German) is to create a believable narrative that resonates on different levels. For instance, he focuses on the meritricious aspects of American culture. Here is where his elitism shines through. It is interesting to listen to what Webster Tarpley has to say about the elitist/oligarchical roots of Malthusianism. Kunstler is solidly in this tradition even though he harps on Fed governors wearing tortoiseshell glasses who went to Andover.

Tarpley is extremely well educated, particularily in history, which is where all of his best ideas come from. Unlike Kunstler, he is not an oligarchical prig who merely has a gift for writing. Recently he has been pointing out that we are very close to developing unlimited energy with the development of the latest tokamak reactor at Princeton and the start of the ITER project in Europe.

Indeed, Kunstler, despite his ranting about derivatives, etc seems to be getting the oligharchs off the hook by blaming everything on peak oil. Read Tarpley at Tarpley.net for a meatier and more informed perspective.

Tue, 01/07/2014 - 04:40 | 4307284 chumbawamba
chumbawamba's picture

Take it as a datapoint and chill out, fellas.  There's plenty of opinion to go around.

Tarpley is a statist tool.

I am Chumbawamba.

Tue, 01/07/2014 - 06:36 | 4307372 Escapeclaws
Escapeclaws's picture

It's true he doesn't write "I am Webster Tarpley" at the bottom of all his posts.

I am Escapeclaws ;)

Tue, 01/07/2014 - 09:26 | 4307560 Ranger4564
Ranger4564's picture

Well played. I need to learn from you.

Agreed with your prior comments as well.

Tue, 01/07/2014 - 10:01 | 4307669 Escapeclaws
Escapeclaws's picture

You are very kind and i'm flattered that you find something of value in what I wrote.

Tue, 01/07/2014 - 05:10 | 4307322 Lore
Lore's picture

Re: "getting the oligarchs off the hook by blaming everything on peak oil."

VERY good point.  Occam was lazy.

Tue, 01/07/2014 - 09:04 | 4307511 centerline
centerline's picture

So many names in history that have provided "theories" which were politically motivated - biased horribly for one reason or another.  That is the real takeaway I think.  Everything with a grain of salt.  Nothing in life is really linear or simple.

Mon, 01/06/2014 - 21:31 | 4306282 centerline
centerline's picture

Didn't follow that logic at all.  What does that have to do with Neo-Malthusianism?  In fact, drop the labels alltogether.

The gist here is simple.  Malthus figures growth can't go on forever and ever without hitting some sort of wall.  He is right.  His "math" sucks though.

Finite planet = finite growth.  There isn't much else to say.  Just a matter of how much tech and how much redistribution is possible before systems crack (social complexity, economies, etc.).

Tue, 01/07/2014 - 09:32 | 4307582 Ranger4564
Ranger4564's picture

The error which you're ignoring is that what is considered "material resource" is not limited to what was previously conceived, so we're not on as finite a rock as some of you pretend. In fact, we're on a vastly more infinite planet as each technological innovation allows for use of unknown / unforseen resources. Take for example Solar / Wind, just as cheap examples of what was long unknown / ignored, and what has the potential to be an infinite resource. You can't use up the Sun's rays, and you can't kill off Wind. What you can do is minimize the damage of "peak oil" by using solar / wind as much as possible to operate the infrastructure, and to only rely on oil when it's absolutely essential. They call them essential oils for a reason. ;-) 

And, with research in chemistry / biology, we're inventing materials vastly superior to materials of days gone by. We will continue to use the imagination, which is unlimited by the way, to solve the problems of scarcity. Which is why, as a species, we've constantly progressed towards surplus.

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